An assessment of the thirty year post-Soviet transition quality in Azerbaijan from an economic and social liberalization perspective

Abstract

Since the fall of the Soviet Union, Azerbaijan has faced numerous economic, political and administrative difficulties. One of them has been oil dependency of the national economy. The impact of the oil industry on the macroeconomic indicators such as the Gross Domestic Production (GDP) and inflation has been a popular theme in the case of the Azerbaijan economy. However, evidence of the extractive industry’s growing influence on Azerbaijan’s national economy in terms of the quality of the transition from a command economy to a market economy is sparse. In this study, we compare Azerbaijan’s transition process with other post-Soviet nations in terms of privatization, international trade and the social sphere, despite dominance by the oil sector. Poor economic diversity is said to be harming institutional quality and impairing long-term sustainable growth. Overall, it seems that Azerbaijan’s transformation is not yet complete. Its pace and quality are greatly influenced by oil prices and the domestic oil boom: when prices are high, the Azerbaijan government eases off and focuses on spending oil cash. When international commodity markets decline, Azerbaijan’s revenue drops, and the government increases its reform efforts. This approach induces economic unpredictability and underperformance and threatens its long-term growth and development. This vicious cycle-forming tendency should alert government bodies and decision-makers to be aware of the country’s excessive oil dependency and the need to diversify the country’s fiscal revenue. However, without political will and strategic planning, this cannot be achieved.